KLCI week ahead Local market to end correction

by **Cals** Mon 18 Nov 2013, 00:13

KLCI week ahead Local market to end correction

Business & Markets 2013

Written by Surin Murugiah of theedgemalaysia.com

Saturday, 16 November 2013 11:22

KUALA LUMPUR (Nov 16): The FBM KLCI is expected to trend higher next week, on the back of dovish comments from US Federal Research chair designate Janet Yellen as well as better than expected third quarter GDP data in Malaysia.
Global equity markets rose on Friday after President Obama's choice to lead the Federal Reserve signaled the U.S. central bank's monetary stimulus would stay in place for some time, while the dollar rose to a two-month high against the yen, according to Reuters.
Meanwhile, the Malaysian economy grew 5% in the third quarter (3Q) of 2013 from a year earlier as exports grew amid firm domestic demand, according to the central bank yesterday.
The growth figure was higher than expected. The median forecast of a Reuters poll was 4.8% growth in the third-quarter gross domestic product (GDP). The forecasts ranged from 3.6 to 5.3%.
Affin IB vice president and head of retail research Dr Nazri Khan in his outlook for the week beginning Nov 18 said that he expects local market to have positive tone next week, ending its three weeks correction (2.1% since October 24th) and gradually trend higher on accommodative stand of Federal Reserve, positive regional performance, stronger commodities price, stable ringgit and bullish speculative accumulation ahead of the Chinese New Year.
“We note that the prospect of continued liquidity support from the Federal Reserve helped global stocks edge higher as the markets digested comment from Janet Yellen whom mounted a robust defence of the Fed’s quantitative easing programme for it meaningful contribution to USA economic growth.
“Janet Yellen’s overtly dovish comments on the proper level of leverage in the economy and her opinion on absence of stock market bubble are enough to boost investor sentiment and push the global equities back into positive territories after three weeks of consolidation (MSCI All World & Dow Jones dip 2.3% & 1.8% respectively over the period),” he said.
Nazri said Bursa should also get catalysts from rising industrial commodities with crude palm oil, light crude oil and copper inching up 4.8%, 0.3% and 0.2% respectively.
He said currency-wise, the ringgit (versus the US dollar) had retreated from two month low (dip 0.4% from 3.218).
“Statistically, stronger ringgit is positively correlated with stronger Bursa performance.
“On the domestic front, the local market saw upside leadership in small cap stocks with FBMSmallCap, FBMFledgling and FBMAce remain within 1% of their record high suggesting a solid Chinese New Year risk-taking sentiment despite a snag in the blue chips counters,” he said.
Nazri said that the on the technical front, a bullish technical momentum divergence was spotted on the FBM KLCI (with MACD and Stochastic flashing golden crossover from oversold territories) indicating more upside near term.
He said the market's 50-day moving average at 1,785 support level should be the logical place to rebound for now.
Nazri said a further penetration above the 1,800 psychological level would target a deeper aims toward 1,826.22, the historical all-time-high.
He said based on positive breadth indicators, more Bursa strength was likely as average daily losers swarmed daily gainers 4 to 2 on good average daily volume totalled 1.5 billion shares, worth RM1.8 billion.
“Finally, for the weekly strategy, we are inclined towards buying Chinese New Year linked small cap stocks such as Wellcall, Uzma, Deleum, Cypark, DKSH, Iris, Hovid, Yinson and Coastal.
“As for blue chips, traders should accumulate holiday-season-beneficiaries-stocks which do well near the festive year end such as Malaysia Airports, Petronas Dagangan, Maxis, Genting, Dutch Lady, AEON and Tenaga,” he said.